How endowment donations grow with investment returns

By Felix Salmon
September 1, 2009
Cooper Union:

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I never understood, when the Harvard and Yale endowments were making gazillions of dollars a year in profit, why anybody would donate any money to them: any growth in the endowment due to donations would be dwarfed by investment gains. But it turns out that alumni don’t think that way, either at Harvard and Yale or at Cooper Union:

One additional benefit of Cooper Union’s returns has been that donations to the college have increased as its endowment has grown, a phenomenon that Yale and Harvard experienced in the boom years.

I’m happy this is happening at Cooper Union, whose endowment is less than $1 billion and has been invested very well. But I don’t really understand why this correlation should hold even unto endowments with more than $30 billion under management.

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Comments
8 comments so far

While I kind of understand what you’re saying (and I definitely agree with it on moral grounds), the reason is so simple that I can’t believe you’re overlooking it (so maybe I’m missing something):
Endowments grow when stocks do well, which is when rich people make tons of money and are more inclined to give some of it away. End of story.

Posted by Sebastian | Report as abusive

i dont think all the donors care about the endowment as much as the tax deduction

Posted by dvictr | Report as abusive

@sebastian – you beat me to it!

might have to do with roi also. if i know that my money (even if it is a drop in the bucket) will either be spent well on education or invested well i would be more willing to donate.

Posted by JM | Report as abusive

People like winners. The institution may not need the money as badly, but if alumni are aware that the endowment is doing well, they may contribute just to feel like they are on the winning team.

Posted by Sam | Report as abusive

Charitable Remainder Trusts

Posted by Mike | Report as abusive

I think it’s the joining the crowd mentality. When my school calls, I tell them they don’t need the money but the food bank does. If the person persists – and it’s always a kid at school – then I use the opportunity to teach a lesson about the meaning of charity.

Posted by jonathan | Report as abusive

One important difference between Cooper Union and the other colleges mentioned is that Cooper has provided a full tuition scholarship to every admitted student for 150 years. The annual cost is far greater than return on endowment even in the good years and the college is dependent on the generosity of its donors to survive.

Posted by Ronni | Report as abusive
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